Top Story

Pound firms amid rising BoE rate hike expectations

The pound has started the new week on the front foot after it managed to come off its worst levels against the dollar on Friday. Against the euro, it closed higher for the third straight session on Friday, before extending its gains at the start of today’s session. Other GBP crosses were also higher across the board at the time of this writing. The early indications suggest speculators are warming up to sterling, possibly on expectations that the Bank of England will hike interest rates for the first time since before the financial crisis. The BoE may also revise its inflation expectations higher than expected, which may mean another rate hike next year. There’s also key UK PMI data to look out for this week, although they will be overshadowed by the BoE’s Super Thursday meeting.

GBP crosses on watch

If the pound is going to strengthen this week then it may perform the best against currencies which are already weak or expected to weaken. The Swiss franc may be one such pair as it continues to remain unloved because of the Swiss National Bank’s extraordinary loose monetary policy stance, and ongoing “risk-on” trade which has reduced the appeal of perceived safe-haven commodities and currencies, including the franc.   

But for me the GBP/NZD may be an even better pound cross to watch and potentially trade, for we will also have important data from New Zealand to look forward to on Tuesday evening or Wednesday morning NZ time. Employment in NZ is expected to have risen by 0.8% in the third quarter after an unexpected 0.2% drop in Q2. Given the political uncertainly in NZ over the past few months, it wouldn’t come as a shock to see another drop in NZ employment or at best a smaller-than-expected pick up. Thus, the potential for disappointment is there, which, if realised, could underpin the GBP/NZD pair.

GBP/NZD breaks out

Indeed, the trend for the GBP/NZD pair is objectively bullish anyway. Not only has it been making higher highs and higher lows since bottoming out a year ago, price is also holding above its 21-, 50- and 200-day moving averages. The moving averages reside in an ascending order and point higher, too. With the GBP/NZD last week breaking through major resistance around 1.90, or more specifically in the 1.8950-1.9070 range, this area has offered some support at the start of this new week. Thus going forward, the bulls need to hold their ground here if the short-term bias is to remain bullish this week. However, a potential break below this area could pave the way for a deeper pullback before the bullish trend probably resumes. On the upside, the Fibonacci extension levels at 1.9400/5 (1.272%) and 1.9960/5 (161.8%) are among the bullish objectives. The latter also comes in just ahead of the next horizontal resistance and psychologically-important 2.0 hurdle, which was formerly support. Although we are miles away from this level, the possibility of weaker NZ data and a BoE rate hike could take us there in no time, not to mention the fact that the area between 2.0000 and 1.9070 is effectively a gap, given how priced had previously dropped through this region in the past. This “gap” may get filled over the coming days and weeks. 

Source: eSignal and FOREX.com.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

Open an Account